Wednesday, April 8, 2020

What Does Brexit Mean For Investors?

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Brexit is not the end of the world for business and investors, but an opportunity to move forward to bigger and better things.

Although triggering Article 50 has been a long time coming – more than nine months since the June 2016 referendum in favour of Britain leaving the European Union (EU) –  the markets have not dived into oblivion as many predicted.

In fact, quite the opposite.

On the day of the Brexit vote, the FTSE 100 closed at 6338.10. Since then the London stock market has soared to a record high of 7373.72 – a gain of around 15%.

At the same time, the value of the Pound has tumbled from US$1.4883 to US$1.2456.

Brexit uncertainty

The next few months are vital for investors, as the negotiating stance of both sides is revealed and some idea of the future European trading landscape is revealed.

It’s true to say that the FTSE gains are the Pound’s loss.

As most of the top companies derive their revenue from exports denominated in foreign currency, they are earning more for selling the same.

The FTSE is caught in a net controlled by foreign currency traders who are looking at their profits rather than the health of the British economy.

The other unknown is how Donald Trump’s election to US president will influence markets.

So far, he has made a lot of election promises he has failed to keep, and unless markets see some action, Wall Street could leave a drive that will push the Dow Jones and NASDAQ down.

Prices will wobble

Predicting what could happen is impossible. Investors cannot see into the future and they should exercise caution over the rhetoric they hear about Brexit from politicians, market analysts and other commentators with a vested interest in how the markets move.

Probably the best strategy is to look for funds and companies that are least affected by a negative outcome in Brexit negotiations between the UK and EU.

Some firms will see share prices wobble, but some are well-placed to ride the storm.

Many analysts point to companies such as British American Tobacco and British Land as likely candidates.

Brexit will introduce uncertainty to the markets until the dust settles in a year or two, but if the markets fall, investors can sniff out bargain stocks. If they rise, then they can bask in the glow of their profits.

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